43
Oil prices impact hit again
By Kalea Hall
YOUNGSTOWN
What once seemed a shale boom now feels more like a bust.
The world of oil and natural gas is cyclical.
In December 2014, the Utica Shale play in Ohio had 59 rigs.
Now there are just 16.
The dramatic drop in the Utica rig count and in U.S. shale plays results from a more than 50 percent decrease in oil prices.
Nationwide, the rig count is down by 1,012 with 862 rigs as of July 2, according to Baker Hughes, an oil field service company based in Houston.
“You are seeing a lot less activity here in the Utica and Marcellus [shales],” said Shawn Bennett, executive vice president for the Ohio Oil and Gas Association. “You are seeing much less investment. This is causing layoffs in the oil and gas industry.”
Take Vallourec Star, at 2669 Martin Luther King Jr. Blvd. Plant leaders Thursday announced a workforce reduction of about 60 to 80 jobs effective in August.
These positions are in operations, production and maintenance areas, a Vallourec Star spokesman said. Those losing their jobs will be offered a severance package.
The reason for the cut is the same as for the rig cut: a weak oil and gas market.
Vallourec Star’s high inventory and sales “significantly below” last year’s sales during the weak period caused the leaders there to make what was called a “very difficult decision.”
“We exhausted all options before taking this step, including voluntary layoffs and early retirement,” Judson Wallace, president of Vallourec Star said in a statement.
“We have a strong, skilled workforce, and I am hopeful we can rehire people back as our needs change in the future.”
Improvement projects and capital investments are in process to help streamline operations, according to Vallourec Star’s statement. The installation of a new state-of-the-art piercer in the Youngstown multistand pipe mill is underway to replace equipment dating back 30 years.
Youngstown’s Vallourec Star is a subsidiary of France-based Vallourec USA. The facility started its production of small-diameter pipe for sales in the U.S. and Canadian markets in October 2012.
A dedication for a new seamless pipe mill took place in June 2013. The state-of-the-art facility, which came at a cost of $1 billion, was constructed to answer the need for small-diameter pipe used in hydraulic fracturing, better known as fracking, a process of extracting natural gas and oil.
Leaders at the local plant, where 650 will be employed after the workforce reduction, have watched the volatile oil and gas market since the start of the year, and made changes accordingly.
By February, company leaders decided on a three-week shutdown. Production schedules had already been made, as well as negotiations with suppliers and contractors were put to minimal use.
But more had to be done.
The company also offered a voluntary six-month layoff for workers interested.
Area officials were not surprised by the workforce reduction.
“We have been aware of the downturn for sometime,” Girard Mayor James J. Melfi said. “It is a very important employer, and the largest employer in the city.”
The city of Girard and Youngstown have had an agreement since 2009 to share the tax revenue generated by Vallourec’s employees.
Last year, $475,000 went into Girard’s general fund from the agreement.
“That is just our share,” Melfi said. “It has a big impact. We do more with more money and less with less money. As a city, we have been preparing for this downturn.”
He said the city will lose about $60,500 in income taxes from the downturn next year.
The conservative estimate is based on the average salary for each worker, which is $55,000, and the deal to split a 2.75 percent income tax with Youngstown.
David Bozanich, Youngstown’s city finance director, said the city would lose about $100,000 in income taxes, but the decline in revenues was anticipated.
“It’s not a shock to the system,” he said.
Youngstown Mayor John A. McNally was happy to hear the workforce reduction is only at 60 to 80 jobs.
“Even though it is some job losses right now, we are hoping later in 2016 they will bounce back,” he said.
While there is no crystal ball to know what will really happen, PNC Economist Mekael Teshome thinks the oil price collapse is behind us, and now it is time for a very slow climb upward.
PNC projections show gas prices up to $63 a barrel by the fourth quarter of 2016. Prices are expected to be in the upper $50 range the rest of the year, Teshome said.
The oil-price decline, however, has been good news for consumers, who are able to pay less at the pump. Gasbuddy.com Senior Petroleum Analyst Gregg Laskoski said consumers are saving on average $700 this year from last.
“Most Americans are saving in the area of 90 cents to a $1 per gallon throughout the U.S.,” he said.
Laskoski doesn’t foresee oil prices climbing significantly anytime soon. The supply is high, and the demand is low.
“OPEC wants to maintain production because they want to pressure U.S. producers,” he said. “It is a tug of war. It is a very challenging situation.”
The cost of oil Wednesday was $51.65 a barrel, down from $51.75 a year earlier, according to the U.S. Energy Information Administration.
“We know that the oil and gas industry historically has significant up and down cycles,” said Guy Coviello, vice president of government affairs and media for the Youngstown/Warren Regional Chamber. “Since a company like Vallourec, which has vast experience and success in the industry continues to make capital investments here for the long term, there is every reason for confidence that the market will boom again. Unfortunately, nobody can predict when.”
Contributor: Brandon Klein, staff writer.